Characteristics of Demand for Pharmaceutical Products:
An Examination of Four Cephalosporins

Sara Fisher Ellison, Iain Cockburn, Zvi Griliches, and Jerry Hausman

Abstract

We model demand for four cephalosporins and compute
own- and cross-price elasticities between branded
and generic versions of the four drugs. We model
demand as a multistage budgeting problem, and we
argue that such a model is appropriate to the
multistage nature of the purchase of pharmaceutical
products, in particular the prescribing and dispensing
stages. We find quite high elasticities between generic
substitutes and also significant elasticities between
some therapeutic substitutes.